When the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Ajay, Atul and Rajesh Gupta, as well as Salim Essa, on 10 October, a nightmarish scenario dawned for the quartet.
- “Many financial systems and institutions around the world pay careful and close attention to our OFAC sanctions authorities and follow suit,” says Robert Mearkle, the US Embassy spokesperson.
- “When we impose sanctions on entities and individuals, they quickly find they have a lot more difficulty doing business around the world because legitimate institutions do not want to find themselves enmeshed with individuals who have engaged in wide-scale corruption,” says Mearkle.
The US government announced the sanctioning of the Guptas and Essa on the grounds of “corruption, bribery and misappropriation of state assets” in a statement issued by the Treasury department.
The US considers such activities a security threat.
The cost of state capture
President Cyril Ramaphosa told investors at the FT Africa Summit in London on Monday that state capture under Jacob Zuma is likely to have cost South Africa R500bn ($34bn).
The Guptas and Essa feature prominently in former public protector Thuli Madonsela’s report on graft, ‘State of Capture’, which was released in October 2016. In particular it highlights to damage to state-owned entities Eskom and Transnet.
During her tenure, Madonsela also produced ‘Secure in Comfort’, a ground-breaking report released in 2014 that compelled then-president Jacob Zuma to repay a portion of state money used towards non-security upgrades to his personal homestead at Nkandla.
The ‘State of Capture’ report paved the way for the Zondo Commission headed by Deputy Chief Justice Raymond Zondo. The commission was set up to determine the Guptas’ influence and reach in state procurement and executive appointments.
- The Guptas and Essa have been implicated in Eskom’s coal supply contracts and the audacious bid to strong-arm Glencore into selling its Optimum Cole Mine in Mpumalanga.
- The brothers and their business associate’s names also appear in the irregular awarding of Transnet’s multi-billion-dollar locomotives contract.
The story of state capture in South Africa extends far beyond the country’s borders.
- Implicated parties or collaborators include consultants McKinsey at Eskom, Bain & Co at Transnet, and KPMG, which served as the Guptas’ auditors.
- Bain and Co advised the erstwhile South African Revenue Service (SARS) commissioner Tom Moyane on the institution’s botched restructuring drive.
- In 2018, Ramaphosa fired Moyane. The former SARS commissioner petitioned the courts for reinstatement, but failed.
Gupta bank accounts in South Africa
In early 2016, South Africa’s big banks began closing the Guptas’ accounts, as well as those of their companies and close associates, for suspicious transactions.
The Financial Intelligence Centre, which monitors South Africa’s financial system for reportable offences, flagged a history of suspicious transactions concerning the Guptas.
This resulted in Standard Bank, Nedbank, FNB and Absa closing all accounts linked to the Guptas.
In 2017, the South African branch of the Bank of Baroda, acting at the behest of its parent company in India, followed suit.
The Guptas challenged the account closures in court, but lost their battle in 2017.
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How the Guptas and Essa will be locked out
The immediate consequences of the US sanctions for the Guptas and Essa include:
- Travel: The US Secretary of State is authorised to impose visa restrictions on designated persons.
- Property: All property and interests in property of these individuals and of any entities that are owned, directly or indirectly, 50% or more by them, individually, or with other designated persons, that are in the US or in the possession or control of US persons, are blocked and must be reported to the US Treasury’s OFAC.
- Transactions: Unless authorised by a general or specific licence issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all transactions by US persons or within (or transiting) the US that involve any property or interests in property of designated or otherwise blocked persons. Both American firms and international firms with American subsidiaries run the risk of violating US sanctions if they do business with the designated individuals, says Mearkle.
News24 reports that political analyst Ebrahim Fakir questioned the timing of US actions and explained the political significance for South Africa thus: “I think it may well be lobbying and networking from the [Cyril] Ramaphosa camp to have this effected to stave off a rearguard action from Jacob Zuma.” He also accused the US of hypocrisy as some of its own corporates were involved in the state capture.
For the opposition Democratic Alliance (DA), it is too little too late.
- “It is however, unfortunate, that President Cyril Ramaphosa’s ANC government has not acted against a single individual that has been implicated in state capture,” said the DA’s Natasha Mazzone.
- “Instead, the Ramaphosa administration has awarded those involved in the looting of our state coffers. It is incomprehensible that not a single individual responsible for state capture has been arrested, let alone charged and hauled before the courts.”
That claim is belied by recent efforts by South Africa’s new justice minister Ronald Lamola, who has asked for legal assistance from seven other countries in the extradition of the Guptas: India, the United Arab Emirates, Canada, Switzerland, Mauritius, Hong Kong and China.
And signs are that South Africa’s National Prosecuting Authority, rejuvenated under new boss Shamila Batohi, has been working in conjunction with the US authorities.
South Africa may never see the bulk of the money stolen by the Guptas’ returned. But the US sanctions will complicate things for those aligned to Zuma in the current faction fight within the ANC, potentially making life easier for Ramaphosa in 2020.
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